A Guide to Fulfillment Automation SLAs: What KPIs to Include and How to Ensure Adherence

fulfillment SLA contract

Warehouse automation is on the rise, and it’s only going to become more prevalent as time goes on, likely to the tune of $41 billion USD by 2027. Now that we’re no longer questioning whether or not robotic automation is going to have an impact on the industry, it’s time to turn our attention to how to get the most out of this technology, and that starts with the contracting process. 

It’s not uncommon in the industry for a solution provider to informally agree to key performance indicators (KPIs) driven by Standard Operating Procedures (SOPs) and leave it at that. While this ensures that the customer will have robots on the floor handling orders, it doesn’t guarantee that the implemented solution will have the desired effect on efficiency and performance. 

To fix this, customers and vendors should collaborate during the design process to work fulfillment automation Service Level Agreements (SLAs) into the contract that they both agree to at implementation. This way, KPIs can measure performance and the solution, with fine-tuning as necessary for maximum benefits. 

Common KPIs and their influencing factors

In the world of automation, there are standard KPIs that are typically used to evaluate the effectiveness of a solution. The following is a list of some of the more predominant ones:

Units Picked/Put Per Hour

  • Type of Technology
  • Order Volume
  • Order Type & Characteristics
  • Picking Algorithm Optimization & Task Assignments
  • Navigation Efficiency
  • Operator Efficiency

Storage Density

  • Type of Technology
  • Inventory Types & Characteristics
  • Storage Rules
  • Storage Unit Design

Order SLA (same- and next-day delivery, 2-hour delivery, etc.)

  • Order Type and Percentage
  • Order, Orderline, Unit Ratio
  • Location Management
  • Order Information Availability
  • Order Processing Rules (e.g., Pick After and Pick Before Certain Time)

Software Uptime

  • Integration Robustness
  • Product Fixes & Upgrades
  • Architecture Robustness
  • Infrastructure Scalability
  • Monitoring and Alert System

Findings from MMH’s 2023 Warehouse/DC Operations Survey pointed to the increasing importance of the systematic use of metrics in managing DCs. Understanding these KPIs equips customers to provide useful feedback to their automation partners. Clear communication of what matters between the customer and the vendor makes it easy to agree on what a successful deployment looks like. 

The hesitation to make a contractual commitment

The reluctance to contractually commit to KPIs is often attributed to general uncertainty, but it’s not impossible to get past this problem if you have the right tools. Some vendors opt for a theoretical evaluation rather than delving into an extensive solution design process to expedite the buying cycle. However, the better option is based on an optimized process involving meticulous data analysis, volume forecasting, solution simulations and iterative adjustments.

These steps pave the way for vendors to make contractual commitments they can keep. And, by understanding the variables that influence the agreed-upon KPIs, customers can fully reap the advantages of automation. It’s a win for both groups and makes it easier for them to achieve success.

To successfully commit to set KPIs, vendors and customers should actively engage in the solutioning process. Vendors need the capability and tools to collect information, analyze data, run simulations, iterate enhancements and identify performance levers. They should also provide several recommendations that customers can choose from. This collaborative approach helps both parties make informed decisions around the consideration of specific KPI values and the roles they each have to play in achieving targets.

The key to upholding automation SLAs

One of the main reasons why automation KPIs are not met as stated in the original design is the reliance on Standard Operating Procedures (SOPs) to drive the parameters in the solutioning process. This is where the software that drives automation becomes the key to achieving KPIs. And the robustness of the software decides how much of the SOP process can be minimized.

A robust software that can optimize orders, inventory, people and processes rather than being directed by people or manual SOPs is the most important aspect of delivering on a committed KPI. An intelligent orchestration solution makes smart decisions in real time to optimize and orchestrate the above-mentioned factors to help achieve the KPIs and prevent them from being completely dependent on SOP adherence.

Without the software piece, vendors can’t make good faith commitments on what kind of performance they can deliver. With it, they can collect information, analyze data, run simulations, iterate enhancements and identify performance levers. Orchestration not only ensures a smooth deployment but also automates the solution adjustments necessary to maintain effectiveness. Leveraging this, customers and vendors can agree to SLAs confidently and secure a better automation journey. 

Orchestration not only ensures a smooth deployment but also automates the solution adjustments necessary to maintain effectiveness.

Related Read: Why Does a Warehouse Need a Management System?

A two-way commitment

A collaborative and iterative solution design approach allows vendors and customers to understand the reasoning behind the KPIs they’re committing to. The benefits become most apparent when this process is backed with a capable and intelligent software platform. The orchestration of resources to optimize in real time and achieve the committed KPIs using a solid technical architecture built for handling scale drives higher-performing solutions that create positive outcomes.

In conclusion, the commitment to Key Performance Indicators is not merely a checkbox; it’s a pivotal element in the success of automation solutions. It’s a shared responsibility that involves both vendors and customers. As the automation landscape continues to evolve, embracing a commitment to KPIs can be the difference-maker in achieving the full potential of automation in the retail and ecommerce industries.

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